Science & Innovation Sector

Summary

1.0 Our science and innovation agendas

1.1 Changes in science and innovation out to 2035

Science and innovation are fundamental to economic growth, with research and development a big determinant of total factor productivity, especially when researchers are well connected with consumers.

Many technological advances have been made in the last 20 years, including a digital communications revolution driven by exponential increases in computer power. By 2035, scientific developments and innovation will have again reshaped the technologies which help deliver economic productivity

• the science of information and data is perhaps the most fundamental research topic of the century¹⁰⁸
  • advances in technologies to analyse information and data will hasten progress in physics, chemistry, biology, social science and economics
• current trends point to the advent of a suite of new digital technologies, such as machine learning, optimisation, artificial intelligence, robotics and distributed ledgers¹⁰⁹
• the imperative to meet global challenges such as climate change and water scarcity will also set the direction of scientific endeavour.

Communications technologies and globalisation will continue to offer greater opportunity for collaboration in scientific research but also more competition in commercial development. For many economies, intellectual property is already the greatest economic resource.

Against this backdrop, knowledge-intensive companies that innovate and export will remain the most profitable, competitive and productive.

1.2 India's science and innovation agenda

India's public spending on research has been stagnant at around 0.8 per cent of GDP for over a decade

• in 2015, the spend was 0.9 per cent of GDP, compared to 1.9 per cent in China, 2.7 per cent in the United States and 0.6 per cent in Australia
• with some important exceptions, India has often piggybacked off the innovations of advanced economies and applied them in an Indian setting
• but despite relatively low funding, India performs well on innovation relative to its GDP per capita.¹², ¹¹⁰

Encouraging trends are emerging in India

• India has become a global research and development hub for sophisticated sectors like network equipment, medical equipment, aerospace, automotive, biotechnology and computation
  • India has 25 innovation centres and has been ranked as the top innovation destination in Asia
    • the country accounts for 27 per cent of Asia's new innovation centres¹¹¹
• in 2017, India ranked 60 on the Global Innovation Index, up from 81 in 2015, driven by increased investment from private institutions and improvements in the capture and use of data
  • the 2017 Global Innovation Index ranked India second for innovation quality for middle income countries.

India attracts foreign investment in research and development from countries around the world

• India is the third-largest destination for imported research and development and has the sixth largest (private plus public) research and development spend globally ranking ahead of France and the United Kingdom¹¹²
  • India receives 15 per cent of United States overseas research and development spending, as does China
• close to 800 leading companies from around the world have set up research and development centres in India
  • Google Capital (a venture capital fund financed by Alphabet Inc) has announced it will establish its first office outside the United States in India
  • in 2015 Rio Tinto established its big data Analytics Excellence Centre in Pune
• the research ecosystem in India presents a significant opportunity for multinational corporations across the globe due to
  • access to technical talent
  • low wages
  • proximity to regional markets
• internationalised Indian companies are seeking to bring new resources and technologies to markets by investing domestically in new solutions, including in data analytics and fintech.

India has a vibrant entrepreneurial scene that is producing numerous affordable innovations

• such as the world's cheapest tablet computer (Aakash) and affordable medical diagnostic devices
• India is home to nine so-called 'unicorn' start-ups valued at more than USD1 billion (including in e-commerce and online retail)
• India was home to 3,100 start-ups in 2014 and is projected to climb to more than 11,500 by 2020¹¹³
• India's National Association of Software and Services Companies reported a 40 per cent increase last year in the number of active incubators and accelerators, with more than 30 new academic incubators established under the government's Startup India – Stand-up India initiative.¹¹³

This progress is, at least in part, the product of regulatory and policy changes by the Indian Government to accelerate innovation growth

• under Prime Minister Modi, India has placed a high priority on science and technology for economic growth and aims to push total research and development spending beyond 2 per cent of GDP
• India's budgetary allocations for science and innovation in 2017–18 included funding for the following departments:
  • Department of Science and Technology: $1 billion on topics including advanced manufacturing, waste management, biomedical devices, electric mobility, Smart Grid and energy storage¹²
  • Department of Biotechnology: $450 million for mission programs on ocean biology, bio pharma product development, agri-tech solutions, start-up innovation eco system, clean energy and epidemic preparedness¹²
  • Ministry of Earth Sciences: $350 million for topics covering water plants and the monitoring of the coastal marine systems of the Indian Ocean¹²

• the Indian Government's 'Start-up India' policy, released in January 2016, offers income tax exemptions for the first three years of a start-up's operations
  • other campaigns like 'Digital India', 'Make in India' and 'Skill India' are contributing to India's startup ecosystem
• India's financial inclusion reforms are providing support to the IT industry and helping India leapfrog technologies and processes
• government investments in space and nuclear science have led to notable achievements, such as the Mars Orbiter and a heavy lift launch vehicle for satellites ('GSLV Mk-III')
• NITI Aayog is directing efforts to ensure science and technology are harnessed to build a powerful innovation sector through incubation facilities and quality higher education
  • it launched the Atal Innovation Mission in 2016, providing a platform for the promotion of innovation hubs, grand challenges, start-up businesses and other self-employment activities, particularly in technology-driven areas
  • it also promotes innovation through a platform for innovative idea generation by setting up Atal Tinkering Labs at schools and incubation centres to nurture innovative start-up businesses.

1.3 Australia's science and innovation agenda

Like India, Australia aims to sustain a strong science and innovation agenda to remain competitive and keep pace with changes out to 2035.

Australia ranked 23rd on the Global Innovation Index in 2017

• seventh in university rankings and sixth on intensity of local competition
• but Australia is not a leader in the start-up world and has a mixed record of commercialisation.

The Australian Government's National Innovation and Science Agenda aims to harness new sources of economic growth to deliver future prosperity for Australia. The Agenda focuses government efforts on four pillars:

• Culture and capital: Initiatives are intended to encourage investment into innovative, high-risk, early-stage Australian firms. They include new tax incentives for venture capital investors investing in early-stage innovation companies and co-investment funds to commercialise research into new products and services (the $500 million Biomedical Translation Fund and the $200 million CSIRO Innovation Fund).
• Collaboration: Change funding incentives to allocate more university funding to research conducted in partnership with industry and for investment in long term research infrastructure. To maintain world-class research infrastructure, the Agenda sets out a plan to invest $2.3 billion over 10 years, funding the National Collaborative Research Infrastructure Strategy, the Australian Synchrotron (accelerator technology) and Square Kilometre Array.¹⁰⁹
• Talent and skills: Promote coding and computing in schools to develop problem solving and critical reasoning skills necessary for high-wage jobs. Link to other innovative economies to attract more entrepreneurial and research talent from overseas. An initial total of $36 million over four years (2016–20) has been allocated towards a Global Innovation Strategy to improve international science and research collaboration.
• Government as an exemplar: Innovate the way government services are delivered and make it easier for small businesses to supply to the government. To drive the agenda in government, a new sub-committee of the Cabinet was formed. An independent advisory board, Innovation and Science Australia, was established in 2015.¹⁰⁹

Future investments to strengthen Australia's innovation system will be informed by:

• the 2016 National Research Infrastructure Roadmap
• Innovation and Science Australia's 2030 Strategic Plan, 'Australia 2030: Prosperity through innovation'
• the Australian Government's Digital Economy Strategy, which is still being developed.

Australia's Industry Growth Centres Initiative is an industry-led approach driving innovation, productivity and competitiveness by focusing on areas of competitive strength and helping transition them to high value and export-focused industries

• Growth Centre objectives include working with industry to increase collaboration and commercialisation and improve international engagement capabilities
• Growth Centres are established across six industry sectors:
  • Advanced Manufacturing
  • Cyber Security
  • Food and Agribusiness
  • Medical Technologies and Pharmaceuticals
  • Mining, Equipment, Technology and Services
  • Oil, Gas and Energy Resources.

2.0 Opportunities for partnership

India and Australia share research priorities because we face shared challenges in improving productivity, sustainability and the health of our citizens. Better science and innovation outcomes can be achieved by working together. Collaboration with India in research and development, and in supporting businesses and start-ups take forward new innovations, presents opportunities to:

• attract investment
  • by providing prospective Australian innovators an additional pathway to attract investment (Australian venture capital as a proportion of GDP remains less than half the OECD average), helping to grow the innovation sector in Australia
• combine complementary skills and expertise to develop new innovations
  • by leveraging Australian expertise in such areas as agri-tech, health-tech, water management, energy efficiency and renewables, with Indian expertise including in data analytics, biotech, and mobile applications
  • by combining Australian research and technology with India's record of frugal innovation to scale up innovations or create new products
• open new markets across the economy (potentially in partnership with Indian innovators)
  • by adapting innovations to the requirements of the large Indian market
  • by using India as a launching pad to other potential regional and global markets
• attract talent and skills to Australia
  • research relationships and joint projects open pathways for leading Indian scientists and researchers to participate directly in the Australian economy
  • bringing Indian start-ups to Australia has potential benefits for Australia
    • if they succeed in finding a market in Australia for their innovation, they could bring investment capital to establish their operation in Australia, generate employment, and introduce new technologies that could contribute to productivity and economic growth
• support our education sector and education linkages
  • establishing people-to-people links in research is essential to Australia's education and training engagement with India [see Chapter 3: Education Sector]

• build trust and relationships
  • beyond the research and commercialisation outcomes themselves, collaboration in science and innovation can entrench working relationships with Indian governments and businesses in priority sectors and states
  • science and innovation plays an important role in building the image of Australia and its businesses
• regulatory cooperation
  • there is scope to share regulatory experience and lessons learned
    • this could focus on the technology sector and how to regulate for disruptive technologies, but could also include sharing the Australian experience of regulating more traditional sectors.

Professor Veena Sahajwalla, a leading researcher and pioneering innovator and former AISRF project manager, in her lab. [University of New South Wales]

2.1 Collaboration

Partnerships that can support collaboration

Businesses: such as Australian companies or multinationals establishing research and development operations in India

• or co-development of new products, for example designed in Australia and manufactured in India at low cost.

Start-ups and entrepreneurs: are large contributors to job creation and innovation in both countries. Matching start-ups with investors or with established businesses in their chosen sector enables start-ups to grow, reach new markets, and learn from the best

• for Australian start-ups, India is an important destination for three reasons: accessing a large market; finding talent such as co-founders, engineers, managers, scientists; and developing strategic partnerships with other multinational corporations that have a base in India.

Government: the main mechanism for government support of Australia-India collaboration in science and innovation is the AISRF, co-funded by both governments. Established in 2006, the AISRF is Australia's largest bilateral science fund. It helps link top universities and research institutions in Australia and India to deliver tangible outcomes to the end users of scientific innovation

• the AISRF is an important and highly successful element of the Australia-India bilateral partnership
  • it strengthens Australia's national research fabric by linking with Indian research skills, expertise and networks
  • it sustains Australia's engagement with India in areas where the Indian Government is seeking closer links and is willing to commit financial resources
  • it also has important symbolic value and is well known in scientific communities in both countries
• highlights of the AISRF include:
  • to date, both governments have committed a total of more than $100 million to support 300-plus collaborative activities such as research projects, workshops and fellowships
  • the AISRF promotes the development of international research expertise and skills by supporting high-performing early and mid-career researchers from Australia and India to work at leading institutions in the other country
  • it has supported key institutional and industry partnerships including the Monash and IIT Bombay Research Academy; CSIRO and Council of Scientific and Industrial Research – the leading publicly funded research agencies in both nations
  • the 'Grand Challenge Fund' component of AISRF facilitates meaningful industry engagement
• unlike Australia's scientific fund with China, the AISRF is not ongoing, meaning it provides less certainty – this must be fixed.

India has bilateral cooperation agreements with a range of other countries on science and technology. With the United Kingdom, Israel and Canada, India engages through the Global Innovation Technology Alliance (GITA), a bilateral public and private partnership model (a '2+2 model') for funding industrial research

• GITA is a not-for-profit public-private partnership company promoted jointly by India's Department of Science and Technology and the Confederation of Indian Industry
• it encourages industrial investments in innovative technology solutions and connects industrial and institutional partners for collaborative industrial research and development projects, providing funding for technology development, acquisition, customisation and deployment
• industry and governments in both countries invest in the project.

3.0 Constraints and challenges

There are several constraints to greater Australian collaboration with India in science and innovation.

3.1 Constraints

Funding

While science and innovation contribute to economic growth and business competitiveness, development requires upfront costs

• prioritising funding from either the public or private sector can be a persistent challenge
• Australia's venture capital sector continues to develop but remains small in comparison to other developed economies, making it harder to go from research to commercialisation.

Delays in the grants of patents in India

According to World Intellectual Property Organisation data, the average time for a patent application to be actioned in India is six years from the date the applicant requests examination

• patent applications by residents in India doubled to 12,579 from 2007 to 2015 – but patents granted fell from 3,173 to 822 over the same period due to there being too few official patent examiners¹⁰
• in contrast, patents granted to residents in China rose from 31,945 to 263,436 from 2007 to 2015.

Intellectual Property protection

Although Indian law provides protection for IP rights, there are concerns over enforcement. A major source of concern is bureaucratic delay, with a backlog of cases in both civil and criminal courts, where cases can run for five years or more. There is also a lack of transparency, particularly at a local level. Damages are routinely awarded in cases involving copyright and trademark infringement, but are less common in patent cases

• the risk of IP loss may be mitigated by partnering with major Indian companies or multinationals, who have an interest in protecting IP.

Competitor countries

The United States and Europe remain top choices for collaboration for Indian scientists, although Australia has recognised areas of expertise (including around water, coal and conservation agriculture)

• several European countries and Israel are already establishing their own accelerator facilities in Bengaluru.

A fragmented system

While some Indian states are research or start-up intensive, India lacks a well-functioning national ecosystem for start-ups

• India's education sector suffers from limited international collaborations, and a low focus on research.

Low rate of Australian collaboration

Australia's rate of collaboration between industry and researchers (at 2–3 per cent) is currently the lowest in the OECD. Australian businesses do not have as much internal research expertise as key comparator countries

• at 43 per cent, Australia's proportion of researchers employed in business is significantly lower than countries such as Germany (56 per cent), South Korea (79 per cent) and Israel (84 per cent).

India can be a difficult market to enter

Unlike more traditional technology hubs such as Silicon Valley or London, where processes are more familiar to Australian institutions

• understanding India's dynamic technology sectors is not easy, and navigating India's state and central bureaucracies can be challenging.

Regulations

The reason the Indian technology sector has thrived is because it has not been stifled by over-regulation

• but many other sectors where science and technology are fundamental inputs are over-regulated [for example, see Chapter 5: Agribusiness Sector and Chapter 8: Health Sector].

4.0 Where to focus

Given the enabling nature of science and innovation across the economy, engagement should be targeted at the nexus of each of our priority sectors with priority Indian states.

At the same time, several cities stand out and should be the areas of focus of science and innovation collaboration in general, including start-up networks

• 66 per cent of start-ups are concentrated in three cities: Mumbai, Bengaluru and New Delhi
• Hyderabad, Chennai and Pune are the next biggest centres for start-up ecosystems.¹¹³

4.1 Key Cities

Bengaluru

• The IT sector in Bengaluru is two decades old and has a high level of maturity.
• Bengaluru hosts the largest technology cluster in India and the fourth-largest technology cluster in the world, spread across sectors including IT and IT-enabled services, pharmaceuticals and biotechnology, defence, aerospace and agri-tech.
• The number of start-ups in Bengaluru rivals those in the global top technology cities.
• The majority of Fortune 500 companies have research and development centres in Bengaluru, searching for innovative products and solutions.
• Bengaluru is also home to India's space program.

Mumbai

• Mumbai's proximity to global capital flows and India's investors supports an emerging startup ecosystem, particularly for business to business innovations.
• As India's fintech capital, fintech is driving Mumbai's startup economy.
• The Society for Innovation and Entrepreneurship, hosted by Indian Institute of Technology, Bombay promotes entrepreneurship and industry partnership.

New Delhi National Capital Region (NCR)

• New Delhi NCR captures the most startup funding of any Indian city.
• The capital region's start-up scene is strengthened by the presence of firms with easy access to foreign investors, government agencies and seed funding.
• The city has leading education, research and scientific institutions and a skilled workforce. It is a major hub for information technology enabled services, e-commerce, business process outsourcing and design work.

Hyderabad

• Hyderabad is becoming a global destination for tech business and entrepreneurs. Telangana provides a state focus on innovation through a formal innovation policy.
• T-Hub, a state government backed start-up incubator, is bringing together Hyderabad's established start-up ecosystem, academics and corporates.
• The city's industrial, information technology and biotechnology clusters have led to a strong research and development capability and facilitated an entrepreneurial ecosystem.